Used well, KPIs, metrics and measures are a powerful instrument for improving business performance and empowering people to make better decisions. In theory, KPIs are a valuable navigation tool, giving everyone in the business an insight into current performance, and guiding the way for future performance. In practise, though, when they’re not used correctly, KPIs can have unintended negative consequences, including decreased performance and low morale.
When KPIs don’t work
Just because something can be measured, doesn’t mean it should be measured. Yet, a common error with KPIs is to track measures precisely because they’re easy to measure – regardless of whether they are meaningful for the business. When KPIs become disconnected from the organisation’s strategy in this way, they’re often little more than a box-ticking exercise, providing no real insights for boosting performance. In these circumstances, it’s easy to see how staff become disillusioned with KPIs.
Worse, though, than not aligning KPIs with business strategy is confusing KPIs with targets. A good KPI is a measure of performance, not a target for people to aim for. As soon as a KPI becomes a target, it’s no longer a KPI – and it can, in fact, have a detrimental effect on performance.
Take this example from an electrical wholesaler. The company created league tables measuring the relative sales performance of branches, and started rewarding the branches with the highest sales. As a result, some branches began competing with each other for the same customers, to the extent that they would undercut a rival branch that was actually closer to the customer, just to win the sale. This meant stores were having to make expensive deliveries to customers hundreds of miles away, despite there being a local store that could have served the customer much more easily. Because the measure became a target that people felt they had to aim for, it distorted their behaviour.
This is a common side effect when KPIs are hard-wired to a system of reward (higher pay, bigger bonus) and punishment (smaller bonus, negative performance review). A true KPI should help people understand performance in terms of where they are right now and where they want to be. As soon as a KPI becomes something individuals and teams have to hit to get a reward, they’ll go to all sorts of creative lengths to secure that reward (or avoid a punishment, for that matter).
Let’s not forget that KPIs only provide a snapshot of performance, and focusing on one KPI as a target leaves other aspects of performance in the dark. As a result, critical areas for improvement may go unnoticed, or key tasks may be neglected in favour of the one thing that’s being measured. It’s like if I ask my children to tidy their room and say that their performance will be assessed on the tidiness of just one corner. Do you think they’ll clean the whole room, as I wanted, or just the one corner that they know will be checked? Just the one corner, of course! You get what you measure, in other words.
How to get it right
So how can you avoid these potentially demotivating pitfalls and implement KPIs in a way that empowers and engages your people? Here are my top tips:
By following these tips, KPIs become collectively owned indicators for guiding decisions and delivering strategic priorities. They become powerful enablers of improvement that motivate and inspire individuals and teams right across the business.
Where to go from here
If you would like to know more about KPIs and performance management, cheque out my articles on:
Bernard Marr is a bestselling author, keynote speaker, and advisor to companies and governments. He has worked with and advised many of the world's best-known organisations. LinkedIn has recently ranked Bernard as one of the top 10 Business Influencers in the world (in fact, No 5 - just behind Bill Gates and Richard Branson). He writes on the topics of intelligent business performance for various publications including Forbes, HuffPost, and LinkedIn Pulse. His blogs and SlideShare presentation have millions of readers.